GSMA Report: Digital Inclusion and Mobile Sector Taxation in Mexico
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Digital inclusion and mobile sector taxation in Mexico AUGUST 2015 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN MEXICO Important Notice from Deloitte This final report (the “Final Report”) has been Accordingly, no representation or warranty, express prepared by Deloitte LLP (“Deloitte”) for the GSMA on or implied, is given and no responsibility or liability the basis of the scope and limitations set out below. is or will be accepted by or on behalf of Deloitte or by any of its partners, employees or agents or The Final Report has been prepared solely for the any other person as to the accuracy, completeness purposes of assessing the economic impacts of mobile or correctness of the information contained in this sector taxation in Mexico by modelling the potential document or any oral information made available and impacts that could be realised by a change in mobile any such liability is expressly disclaimed. taxation under a set of agreed assumptions and scenarios. It should not be used for any other purpose All copyright and other proprietary rights in the Final or in any other context, and Deloitte accepts no Report are the property of the GSMA. responsibility for its use in either regard. This Final Report and its contents do not constitute No party other than GSMA is entitled to rely on the financial or other professional advice, and specific Final Report for any purpose whatsoever and Deloitte advice should be sought about your specific accepts no responsibility or liability or duty of care to circumstances. In particular, the Final Report does any party other than the GSMA in respect of the Final not constitute a recommendation or endorsement by Report or any of its contents. Deloitte to invest or participate in, exit, or otherwise use any of the markets or companies referred to in As set out in the contract between Deloitte and it. To the fullest extent possible, both Deloitte and GSMA, the scope of our work has been limited by the GSMA disclaim any liability arising out of the use the time, information and explanations made available (or non-use) of the Final Report and its contents, to us. The information contained in the Final Report including any action or decision taken as a result of has been obtained from the GSMA and third party such use (or non-use). sources that are clearly referenced in the appropriate sections of the Final Report. Any results from the Deloitte contact analysis contained in the Final Report are reliant Davide Strusani on the information available at the time of writing Director, TMT Economic Consulting, London the Final Report and should not be relied upon in dstrusani@deloitte.co.uk subsequent periods. www.deloitte.co.uk 2 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN MEXICO DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN MEXICO CONTENTS IMPORTANT NOTICE FROM DELOITTE 2 EXECUTIVE SUMMARY 5 1 THE MOBILE INDUSTRY IN MEXICO 14 1.1 Mobile services are enabling digital inclusion in Mexico 14 1.2 Mobile services are a key driver of social and economic development 15 1.3 Current gaps in digital inclusion 19 1.4 Policy reforms and the future of mobile 27 1.5 Assessing the impact of taxation on digital inclusion in Mexico 28 2 TAXATION ON THE MOBILE SECTOR IN MEXICO 29 2.1 Taxes on mobile consumers in Mexico 29 2.2 Taxes and fees levied on mobile operators in Mexico 31 2.3 Best practice in taxation policy 35 3 CASE STUDIES: IMPACTS OF MOBILE TAXATION CHANGES 38 4 ECONOMIC IMPACTS OF REFORMING MOBILE TAXATION IN MEXICO 41 4.1 How mobile taxation in Mexico impacts the economy 41 4.2 Reducing the IEPS on mobile services to 1.5% 43 4.3 Removing the IEPS on mobile services 44 4.4 Reducing the regulatory fees by 10% 46 4.5 Pricing of spectrum and other regulatory fees 47 5 MOBILE TAXATION IN MEXICO: AN AGENDA FOR REFORM 49 5.1 Contribution to fiscal stability 49 5.2 Options to align mobile taxation to standard goods taxation 50 Appendix A Methodology 52 3 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN MEXICO Mobile services support digital inclusion and economic and social development in Mexico. 4 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN MEXICO DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN MEXICO Executive Summary Mobile services are critical for digital inclusion and economic and social growth in Mexico Mobile services in Mexico currently connect • Mobile is the most cost-effective way of 47 million unique subscribers, 38% of the extending access to broadband, driving population, and while most of the connected the growth of the knowledge economy Mexican subscribers still use 2G services, and developing digital capabilities across faster speeds are increasingly available. all sectors of the economy. The ITU has Although more progress is needed, mobile estimated that in 2015, the global average services are already making a number of price of a basic fixed broadband plan is positive contributions to the Mexican 1.7 times higher than the average price of economy and society: a comparable mobile broadband plan. • Mobile promotes digital inclusion, enabling • Mobile has the potential to support and many more Mexicans to benefit from the enhance social development. For example, exchange of information for business applications like “Mi bebe”, a health service and social purposes and from increased for pregnant women, provide locally productivity, and can potentially improve relevant content that directly impacts access to education, healthcare and on users’ quality of life. Further, mobile government services. These impacts can banking services such as Transfer and Fondo help the government toward achieving the Personal MiFon help to extend banking national goals of sustainable and inclusive services to the unbanked, while initiatives economic growth outlined in the National such as those in the TELMEX Digital Development Plan 2013-2018. Education and Culture Program deliver educational Information and Communication • Mobile services are creating economic Technology (ICT) content and training to activity in Mexico, both through the direct promote the digital inclusion of children, contribution of the mobile operators and young people and adults. the indirect value added by the activity of other related sectors as a result of mobile operators’ expenditure on their services. However, despite the progress the mobile GSMA/Deloitte carried out a study of industry has made in extending mobile access these impacts in 2012 and estimated that and digital inclusion over the recent years, operators directly created USD 2.7 billion in the majority of Mexicans do not yet have a value add in 2011. Operators’ expenditure mobile connection, and even more Mexicans across the mobile ecosystem contributed a lack access to mobile internet and broadband further USD 4.6 billion in 2011. The induced services. Approximately 54 million adults are impacts resulting from subsequent rounds not yet mobile subscribers, and Mexico’s mobile of expenditure created by these direct and internet penetration rate is the second lowest in indirect spend was estimated at USD 2.9 Latin America. Low income earners and women billion in 2011. Extending access to mobile in rural communities are especially at risk of has the potential to increase GDP growth, being left behind. employment, tax revenues and long-term economic and fiscal stability. 5 DIGITAL INCLUSION AND MOBILE SECTOR TAXATION IN MEXICO Seeking to extend ICT access, the government are intended to address these issues. These and international organisations have identified reforms have three pillars – national coverage, affordability and investment as key issues that competitive prices and quality of service. The create barriers to digital inclusion. First, devices reforms involve changes to the mobile market, and services remain unaffordable for many including a set of regulatory changes, a public- Mexicans, particularly those in the poorest private partnership network and a “universal segments of the population. A basic device digital inclusion” policy. As a result of these accounts for over 5% of annual income for the reforms, several new regulations have been poorest 10% of households, and more advanced introduced in the mobile market: for example smartphones are even more unaffordable. a number of wholesale services (e.g. mobile Second, further investment is needed to extend call termination, SMS termination, national networks and improve service quality. Mexico roaming, and MVNO access) are now subject has the lowest level of mobile investment per to regulation and lower rates. If successful, capita among the signatories to the Convention the reforms have the potential to increase on the Organisation for Economic Cooperation subscription, usage and economic growth. and Development (OECD countries), and However, there is considerable debate over provision of network capacity is required to aspects of these reforms. ensure users can access the benefits of high- speed mobile broadband. Even in these reforms, the government has not yet addressed the policy issue of Against this background, the Mexican imbalanced taxation on the mobile sector, government has recently introduced a series which creates significant costs for mobile of wide regulatory and policy reforms that consumers and operators. Higher taxation on mobile compared to other goods risks reducing the impact of the government’s reforms, growth in the mobile sector and Mexico’s overall economic growth. Mobile consumers pay the Impuesto Especial This tax burden on consumers can lead to sobre Produccion y Servicios (IEPS) tax on reduced demand for mobile services, slowing mobile airtime and SMS. The IEPS is a special the growth of the sector. This burden can be tax on production and services that is levied particularly problematic in Mexico because on certain goods and services such as sales of affordability is a key barrier. alcoholic beverages, tobacco, gasoline, diesel, gambling and betting, and telecommunication services.